Uganda: Bou Lowers Growth Forecast for 2021/22

15 October 2021

Bank of Uganda has lowered growth prospects for the 2021/22 financial year resulting from disruptions caused by the Covid-19 second wave.

While releasing the Monetary Policy Committee report in Kampala yesterday, Bank of Uganda said the second wave of Covid-19 had interrupted economic recovery, leading to a decline in real gross domestic product growth momentum.

However, the Central Bank noted, the disruption was less compared to the earlier one between March and June last year, which adversely affected the economy.

Yesterday, Mr Emmanuel Tumusiime Mutebile, the Bank of Uganda governor, said there was a possibility that the economy will remain volatile in the short and medium-term, thus maintaining the Central Bank Rate at 6.5 per cent was prudent to check growth of inflation above the 5 per cent target.

Covid-19, he said, continues to pose uncertainty in near-term, noting that: "Economic growth will depend on pent-up demand, a boost in investment activity from government on infrastructure and support to sectors that have been more adversely affected," he said.

Therefore, Mr Mutebile noted, economic growth is projected to contract to between 3.5 and 3.8 per cent for the 2021/22 financial year.

The projection is slightly lower than the August round of forecast in which the Central Bank had projected the economy to grow at between 3.5 and 4 per cent.

However, the Central Bank noted, the economy is expected to rebound on increased vaccination and easing of restrictions to between 5.5 and 6 per cent during the 2022/23 financial year, before increasing to between 6.5 and 7.5 per cent in the next two to three years.

Mr Mutebile also noted that current economic fundamentals suggest the economy is pulling out of the effect of Covid-19 second wave, adding that a total rebound will be sustained by an acceleration in private consumption, strong growth in external demand, a gradual return of tourism and foreign and domestic private investment in the oil sector.

Mr Mutebile said the outlook remains overcast by the future path of the pandemic, especially a major mutation of the virus that could severely undermine vaccine effectiveness and delay both domestic and global economic recovery.

Private sector credit extension, a key growth factor, according to Bank of Uganda, remains sluggish due to perceived risks that continue to impair private investment comprising the quality of financial market information and lenders ability to assess the viability of borrowers and investment projects.

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